February sure is turning into a month which is exceeding my own expectations of purchases and putting cash to work. I made one last purchase before the end of the month. I was originally planning this purchase for the next month, but as is the case, the stock market provides some catalyst that is hard to predict and an investor has to take a decision and move. Moreover, if an investor’s mind is made up to invest in something, there’s no point in holding off and is better to pull the trigger. This new purchase adds a new company to my portfolio – my 26th individual company (excluding the ETFs).
I initiated a position in Main Street Capital Corp (MAIN) with 50 shares @ $30.69. The company announced a dividend increase this morning before market open and I decided that it was as good a time as any to start a position. The new dividend amount is $0.175/share, up from $0.17/share paid monthly. The forward yield is 6.85% and adds $105 to my FY annual dividend income.
From Yahoo! Finance:
Main Street Capital Corporation is a business development company specializing in long- term equity, equity related, and debt investments in small and lower middle market companies. The firm focuses on investments in warrants, PIK (Payment in Kind) interest, convertible securities, junior secured or unsecured, subordinated loans, private equity, venture debt, mezzanine investments, mature, mid venture, industry consolidation, later stage, late venture, emerging growth, management buyouts, ownership transitions, recapitalizations, strategic acquisitions, business expansion, growth financings, and other growth initiatives primarily for later stage businesses. It does not seek to invest in start-up companies or companies with speculative business plans. It seeks to invest in traditional or basic businesses. The firm primarily invests in companies based in the Southern, South Central, and Southwestern regions of the United States but also considers other domestic investment opportunities. It invests between $2 million and $15 million in companies with revenues between $5 million and $300 million, enterprise values between $3 million and $50 million, and EBITDA between $1 million and $20 million. The firm seeks to charge a fixed interest rate between 12 percent and 14 percent, payable in cash, in case of its mezzanine loan investments. The firm typically invests in the form of term debt with equity participation and/or direct equity investments. It prefers to maintain fully diluted equity positions in its portfolio companies of 5 percent to 50 percent, and may have controlling interests in some instances. The firm also co-invests with other investment firms. It seeks to exit its debt investments through the repayment of the investment from internally generated cash flow and/or refinancing within a period of three to seven years. Main Street Capital Corporation was founded in 1997 and is based at Houston, Texas.
Recent Buy Decision
- As the company profile details above, Main Street is a business development company (BDC). For regular readers of this blog, you may remember I discussed BDCs as an alternative to an alternative form of investing a few months ago. An alternative investment can be private equity and while retail investors can find it hard to get private equity, BDCs are a proxy that works very well in this form of investment.
- BDCs provide access to a different part of the economy that is unavailable otherwise.
- Main Street specializes in long-term equity, equity related, and debt investments in small and lower middle market companies. MAIN does not seek to invest in start-up companies or companies with speculative business plans, but rather in traditional or basic businesses.
- While there are plenty of BDCs out there, MAIN is the most conservative and one of the best run BDCs available for investment.
- The yield 🙂
- The growth in yield – MAIN is not only a high yielder, but also grows dividends.
- The company also has a history of special dividends on a semi-annual basis for the past couple of years. I rather prefer special dividends if companies have extra cash to return, rather than a stock buybacks.
- In this frothy market, there are seldom any insiders buying their own stock – and MAIN has seen some of its directors picking up shares over the course of last year, which should be a good indication of the company’s outlook.
- The nature of BDC itself is risky as they invest in smaller/micro/unknown companies.
- Some other BDCs have recently cut dividends as they had run off the charts. While the other BDCs took more risk in their investment and had to rein their payouts in, MAIN is more conservative. However, MAIN is not immune to the headwinds of an economy and if the portfolio holding companies go bust, MAIN could have trouble paying its dividends.
- MAIN’s business is concentrated in the southern and the southwestern US states. Texas and the other states are facing more headwinds than the rest of the US due to the oil price crash and it remains to be seen how this will impact the smaller companies in the region.
- Since its an investment company – interest rate and access to cheap capital plays a big role.
Main Street Capital (MAIN) is a business development company (BDC) that provides investors with access to a special marketplace that is inaccessible by investing elsewhere. While investing in private equity can be risky, which is usually the focus of BDCs, MAIN is different in that it does not invest in start-ups, but rather invests in established small and lower middle market companies. MAIN is probably the most conservative company in the BDC space and the yield provides a lucrative option for income seeking investors.
- Symbol: MAIN
- Quote: $30.93
- 52-week range: $26.42-$35.59
- P/E: 13.21
- Forward P/E: 12.80
- Yield: 6.8%
- Payout: 76%
Full Disclosure: Long MAIN. My full list of holdings is available here.